October was marked by continued volatility across fixed income and equity markets as investors faced various challenges, including persistent inflation concerns, rising yields, tightening monetary policy, and the backdrop of a U.S. Presidential election.
The Institute for Supply Management’s monthly survey of purchasing managers came in below expectations for August, while the Bureau of Labor Statistics jobs report indicated that nonfarm payrolls expanded by only 142,000 jobs during the month (against expectations of 161,000 jobs).
After a challenging July that saw investors sell off high-flying technology stocks, buyers returned to the market in August, bidding up risk assets across the board.
Investors seeking clarity on the future path of inflation and interest rates struggled to find it in March as key economic indictors sent mixed signals. The month kicked off with a strong February jobs report, with the Labor Department reporting that nonfarm payrolls increased by 275,000 for the month (against expectations of 198,000). While the February numbers suggested the economy continues to run hot, downward revisions to the December and January reports reduced the initial estimates for those months by 167,000 jobs and the unemployment rate rose from 3.7% to 3.9% in February.
January 12, 2024 - Today’s Producer Price Index report supports the notion that inflation has essentially been defeated. PPI fell to negative headline MoM, 0% core MoM, 1.8% YoY core change, and 1.0% YoY headline change.
Bonds had a great month in November. Indications that the Fed will pause again were extrapolated into easing expectations as soon as next quarter. Lower yields help the relative valuation of equities, although Factset earnings forecasts are no longer trending upwards.
When looking at the markets on the day of the October CPI release (Nov. 14) vs. later in the week (Nov. 16), you’ll notice there’s been a big shift in thinking, with ZERO additional rate hikes priced in from the Federal Reserve, signaling their fight against inflation may be coming to an end. A June rate cut has actually been priced in, and there are signs that it’s inching even earlier.
In my opinion, true active strategies have a very important role in portfolios as complements to passive, cheap beta. Advisors need to understand what they own.
October was marked by continued volatility across fixed income and equity markets as investors faced various challenges, including persistent inflation concerns, rising yields, tightening monetary policy, and the backdrop of a U.S. Presidential election.
As an investor, it’s nice to know what we should expect from President Trump, because we have seen the movie before in 2017 – 2021. Apart from the early part of the Pandemic period, the economy and stock markets generally performed well.
Remember, our investment in stocks is a De facto vote of confidence on the economies in which we invest. Earnings, revenue, margins, free cash flow, and the growth of these important metrics is what drives stocks up or down over time.
The discretionary sector struggled as did all growth and quality-oriented areas of the market in 2022. That was a classic re-set and a raging opportunity to add exposure.
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